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The Biotech Startup Contraction Continues… And That’s A Good Thing

Venture creation in biotech is witnessing a sustained contraction. After the pandemic bubble’s over-indulgence, the venture ecosystem appears to have…

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Venture creation in biotech is witnessing a sustained contraction. After the pandemic bubble’s over-indulgence, the venture ecosystem appears to have reset its pace of launching new startups.

According to the latest Pitchbook data, venture creation in biotech hit its slowest quarterly pace in eight years during 1Q 2024.  With just over 60 new biotechs raising their first round of financing, the sector’s company formation activity has slowed 50-60% from its historic peak in 2021.

Overall, this contraction is a strong positive sign of healthy discipline, and should be good for the sector’s mid- and long-term prospects.  Back in April 2023, in the midst of the second year of the market pullback, I shared some reflections on why it was likely to be “for the better.”  At the risk of revisiting those points, here are a few reasons for why I still believe this contraction in venture creation is a healthy dynamic for the sector:

First, venture creation is hard to do well, and even harder at scale. Beyond simply backing great science (separating the wheat from the chafe), setting a company up properly is critical, and early choices can get locked into the DNA of the company.  I’m often reminded of Peter Thiel’s law: “A startup messed up at its foundation cannot be fixed.”  Back in 2013, I opined on this concept and many of the pitfalls highlighted around messing up venture formation remain salient today: unreproducible science (or poor target selection), inexperienced founders/”founder-itis”, poor Board governance, unwieldy syndicates, odd founding agreements, off-market capitalizations, etc… These are all no less relevant today than in the past, and in the pandemic period of irrational exuberance for big science many startups incorporated lots of these mutations into their founding DNA. Some continue to do so today, unfortunately, but there appears to be less of it happening.

Second, great teams of truly experienced leaders are scarce.  Catalytic executives, rather than stoichiometric ones, can change the trajectory of startups but are in very short supply.  Some grey hair is often, although not always, important. Fundamentally, even during tighter markets like today, great talent is always a very constrained resource, and spreading it too thinly across too many companies isn’t good for the ecosystem. Great scientists need great business partners, and vice versa, in order to be effective leaders in biotech – which means that concentrating the scarce high-quality talent in fewer companies will collectively be a good thing for the sector.

Third, with the proliferation of startups, we’ve seen incredible crowding in hyper-competitive therapeutic categories and modalities. This has long been a feature of biopharma (see 2012 and 2016 posts on oncology and immune-oncology, respectively), but has been exacerbated by the creation of so many new companies. Further, this lemming challenge has also moved well beyond oncology – think of all the “not-so-fast follower” autoimmune programs or metabolic disease stories. While it may help shake out some incremental advances for the therapeutic armamentarium, this dynamic also clearly creates inefficiencies and waste – both in terms of capital deployment, but also for patients’ engagement and clinical trial activity.  Further, the competitive intensity in certain areas makes the “clinical do-ability” too challenging, even if those drugs could likely be beneficial. Fewer startups over time should ameliorate this crowding dynamic to some extent.

Fourth, the venture exit environment circa 2027-2030 for the new crop of early stage startups being created today will likely have structural supply/demand elements more favorable than the backdrop in recent years. With venture creation activity peaking in 2020-2022, the sector was awash in too many startups – much like the tech VC sector a few years back.  In macroeconomic terms, a glut of startup equity (over-supply) in the face of fixed demand (M&A), or less demand (IPOs), means an unfavorable pricing dynamic. I explored this in a different phase of the biotech venture cycle a decade ago, but the themes are still relevant (in the opposite direction) for describing the recent and challenging exit environment. With fewer startups being created, the supply/demand balance should revert to a more favorable macro bias in the coming years (once the pig has been digested). This, of course, is only a comment on ecosystem “flux” dynamics, not all of the other potential policy and pricing headwinds.

One critical caveat to these positive observations: our job is to bring medicines to patients.  A more constrained startup world means fewer bench-to-beside efforts will be embarked on by the sector as a whole, which could leave innovative new medicines stalled in laboratories around the world. We need to be mindful of this challenge, and ensure that the best ideas (rather than just the best connected ideas) are getting advanced by the sector.

It’s also important to note that my reflections above, and the data, are focused on the number of new startups being formed. Absolute funding levels are important too.  While also off from their peaks in 2021, there’s still significant aggregate venture funding flowing into the startup world by any historic metric. In the past couple months, we saw the first $1B initial financing in biotech with the launch of Xaira, as well as large first financings from Metsera ($290M) and Mirador ($400M).  Despite these mega-round financings, though, the median first financing remains in the $5-10M range, where it has been for years.

Stepping further back to the asset class, this contraction should be viewed positively by LPs, who invest into venture funds, and the VCs they back, as more discipline should translate into better returns in the long term: constrained resources should improve the average health of the venture herd.

The post The Biotech Startup Contraction Continues… And That’s A Good Thing appeared first on LifeSciVC.

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Popular fast-food chain files Chapter 11 bankruptcy facing lawsuits

A stack of legal problems has pushed a popular fast-food restaurant chain to file Chapter 11 bankruptcy.

Published

6 hours ago

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April 26, 2024

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The restaurant industry continues navigating through the aftermath of the Covid-19 pandemic, as many fast-food and fast-casual chains battle financial distress related to reduced foot traffic, as well as inflated food prices and rising interest rates.

Fast-casual Tex-Mex chain Tijuana Flats Restaurants on April 19 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida, after launching a strategic review in November 2023 seeking answers for turning around the struggling chain.

Related: Bankrupt fast-food chain exits Chapter 11; to expand size 4 times

The company sold the company to a new ownership group, closed 11 of its locations and filed for a bankruptcy reorganization to revitalize its restaurants and reinvigorate the customer experience.

Reorganization, however, is not an option for another restaurant chain, as Foxtrot and Dom’s Kitchen & Market, with 33 locations across the U.S., filed for Chapter 7 liquidation on April 23 after failing to recover from financial distress dating back to the Covid pandemic.

Another restaurant chain, Sticky's, will have a chance to recover from the Covid pandemic's effects through a reorganization plan.

A delivery person rides a bicycle outside Sticky's restaurant in New York City.  (Photo by Noam Galai/Getty Images)

Noam Galai/Getty Images

Sticky's to reorganize in Chapter 11 

Sticky's Holdings, the parent company of New York-based chicken fingers fast-food chain Sticky's, filed for Chapter 11 bankruptcy on April 25 to reorganize its business after suffering financial distress from reduced traffic following the Covid pandemic, rising commodity prices, and lawsuits.

The debtor listed $5.75 million in assets and $4.67 million in liabilities in its petition. It's largest unsecured creditor is US Foods, owed over $449,000.

Sticky's, which opened in 2012, grew in sales from about $500,000 in 2013 to $22 million in 2023, but the Covid pandemic that significantly affected the restaurant industry starting in 2020 depressed store traffic. Revenue suffered and foot traffic has not returned to pre-pandemic levels, according to a declaration filed by Sticky's CEO Jamie Greer.

Rising inflation caused commodity prices to increase, forcing Sticky's to raise its menu prices, which further stifled traffic to the restaurant chain. As part of its efforts to reduce costs, the company in early 2021 exited its corporate offices on East 33rd Street in New York before its lease expired, according to the declaration.

Related: Luxury appliance retailer files Chapter 7 bankruptcy to liquidate

Legal problems drive restaurant chain to bankruptcy

The debtor's landlord filed a summary judgment on June 22, 2021, to recover the remaining rent and legal fees, which a court granted with a $600,000 award. The debtor has appealed the judgment costing the company more in legal fees.

More legal problems fell on Sticky's as on June 30, 2022, Sticky Fingers Restaurants LLC filed a lawsuit against Sticky's Holdings in the U.S. District Court for the Southern District of New York for alleged trademark infringement violations. The costs and expenses related to the ongoing litigation has imposed significant further financial hardship on the debtor, court papers said.

The debtor on Feb. 23, 2024, entered into an equity financing transaction that converted $2.42 million in convertible notes issued Nov. 9, 2022, and due March 31, 2024. The transaction substantially reduced the debtor's short-term liquidity needs, the declaration said. However, the company's financial headwinds prevented the debtor from continuing operations leading it to file bankruptcy to seek a reorganization.

Sticky's is a chain of chicken fingers  and sandwich restaurants that serves fresh, never frozen and antibiotic-free chicken. It offers 18 in-house sauces for its chicken products.

Sticky's currently operates 12 locations, with nine in New York and three in New Jersey. It has closed two locations in New York and one each in New Jersey and Pennsylvania. The company had established a franchise entity to operate potential franchise operations, but none opened.

Related: Veteran fund manager picks favorite stocks for 2024

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Popular fast-food chain files Chapter 11 bankruptcy; faces lawsuits

A stack of legal problems has pushed a popular fast-food restaurant chain to file Chapter 11 bankruptcy.

Published

7 hours ago

on

April 26, 2024

By

The restaurant industry continues navigating through the aftermath of the Covid-19 pandemic, as many fast-food and fast-casual chains battle financial distress related to reduced foot traffic, as well as inflated food prices and rising interest rates.

Fast-casual Tex-Mex chain Tijuana Flats Restaurants on April 19 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida, after launching a strategic review in November 2023 seeking answers for turning around the struggling chain.

Related: Bankrupt fast-food chain exits Chapter 11; to expand size 4 times

The company sold the company to a new ownership group, closed 11 of its locations and filed for a bankruptcy reorganization to revitalize its restaurants and reinvigorate the customer experience.

Reorganization, however, is not an option for another restaurant chain, as Foxtrot and Dom’s Kitchen & Market, with 33 locations across the U.S., filed for Chapter 7 liquidation on April 23 after failing to recover from financial distress dating back to the Covid pandemic.

Another restaurant chain, Sticky's, will have a chance to recover from the Covid pandemic's effects through a reorganization plan.

A delivery person rides a bicycle outside Sticky's restaurant in New York City.  (Photo by Noam Galai/Getty Images)

Noam Galai/Getty Images

Sticky's to reorganize in Chapter 11 

Sticky's Holdings, the parent company of New York-based chicken fingers fast-food chain Sticky's, filed for Chapter 11 bankruptcy on April 25 to reorganize its business after suffering financial distress from reduced traffic following the Covid pandemic, rising commodity prices, and lawsuits.

The debtor listed $5.75 million in assets and $4.67 million in liabilities in its petition. It's largest unsecured creditor is US Foods, owed over $449,000.

Sticky's, which opened in 2012, grew in sales from about $500,000 in 2013 to $22 million in 2023, but the Covid pandemic that significantly affected the restaurant industry starting in 2020 depressed store traffic. Revenue suffered and foot traffic has not returned to pre-pandemic levels even after the pandemic subsided, according to a declaration filed by Sticky's CEO Jamie Greer.

Rising inflation caused commodity prices to increase, forcing Sticky's to raise its menu prices, which further stifled traffic to the restaurant chain. As part of its efforts to reduce costs, the company in early 2021 exited its corporate offices on East 33rd Street in New York before its lease expired, according to the declaration.

Related: Luxury appliance retailer files Chapter 7 bankruptcy to liquidate

Legal problems drive restaurant chain to bankruptcy

The debtor's landlord filed a summary judgment on June 22, 2021, to recover the remaining rent and legal fees, which a court granted with a $600,000 award. The debtor has appealed the judgment costing the company more in legal fees.

More legal problems fell on Sticky's as on June 30, 2022, Sticky Fingers Restaurants LLC filed a lawsuit against Sticky's Holdings in the U.S. District Court for the Southern District of New York for alleged trademark infringement violations. The costs and expenses related to the ongoing litigation has imposed significant further financial hardship on the debtor, court papers said.

The debtor on Feb. 23, 2024, entered into an equity financing transaction that converted $2.42 million in convertible notes issued Nov. 9, 2022, and due March 31, 2024. The transaction substantially reduced the debtor's short-term liquidity needs, the declaration said. However, the company's financial headwinds prevented the debtor from continuing operations leading it to file bankruptcy to seek a reorganization.

Sticky's is a chain of chicken fingers  and sandwich restaurants that serves fresh, never frozen and antibiotic-free chicken. It offers 18 in-house sauces for its chicken products.

Sticky's currently operates 12 locations, with nine in New York and three in New Jersey. It has closed two locations in New York and one each in New Jersey and Pennsylvania. The company had established a franchise entity to operate potential franchise operations, but none opened.

Related: Veteran fund manager picks favorite stocks for 2024

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The 2024 NFL Draft: TV ratings, player contracts, and fan attendance

The NFL has made its draft a massive spectacle that many flock to see.

Published

15 hours ago

on

April 25, 2024

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The 2024 NFL Draft could be a league-defining one.

There are a slew of star quarterbacks at the top, including projected first overall pick Caleb Williams, who many are saying could become a generational player in the NFL.

The NFL Draft — which begins on April 25 at 8 p.m. Eastern time on ABC, ESPN, and the NFL Network — provides an opportunity for NFL teams to bolster their roster with young talent, but it also has a slew of off-the-field effects.

Related: Bill Belichick's post-coaching career plans are finally being revealed

The NFL has made the draft a three-day spectacle that rakes in tens of millions of viewers and brings in a ton of fans to the host city. Here are just some of the business-related topics that surround the NFL Draft.

Draftees are receiving life-changing money (How much exactly?)

Getting drafted to play sports professionally is not just the fulfillment of a dream, but, in the case of players getting drafted to one of the major sports leagues, it tends to come with a contract worth millions of dollars.

More often than not, that's life-changing money for the draft picks. It may seem a little less so now because the NCAA has allowed college athletes to profit off of their name, image, and likeness since July 2021 — and Williams notoriously has lived in a penthouse apartment in Los Angeles while being a college player for USC.

But even projected Top 10 pick Rome Odunze explained that he never received millions to play in college, so his and the 256 other players who will be picked in the 2024 NFL Draft are about to see a complete lifestyle shift because of their new financial stability.

According to Spotrac, the No. 1 pick in the 2024 NFL Draft, which will go to the Chicago Bears, will receive a contract worth $38.5 million That comes over four years, putting the average annual value at over $9.6 million.

The No. 1 pick in the 2024 NFL Draft will make much more than the rest of the field — though everyone leaves with a multi-million-dollar contract.

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The first pick makes nearly $2 million more than the second pick – which will be made by the Washington Commanders – who will receive a little under $36.9 million, which is an annual salary of $9.2 million.

There are 32 picks in the first round — which is technically one per team, though trades affect which teams make each selection — and the drop off in salary to be made by the No. 1 pick and the No. 32 pick is massive.

The No. 1 pick actually makes over three times more than the final pick of the first round, who is set to make about $12.1 million over four years, or $3.04 million annually.

And falling out of the first round also takes a huge chunk out of a player's salary. The No. 33 pick in the draft, which is the first pick of Day 2 of the draft, makes $9.9 million in total — over two million less than the person picked right before him.

Mr. Irrelevant — the term given to the last player selected in the seventh round, which this year is pick No. 257 by the New York Jets — is still going to be a millionaire based on his contract of $4.1 million, or about 1.025 million annually.

However, not all of the late round picks make the final roster, so those players will need to secure one of the 53 roster spots on their team to ensure themselves of those millions.

Related: How Much Money Do NFL Draft Picks Make?

The NFL Draft is not a game — but it still brings in millions of viewers.

There are zero total snaps of the football during the NFL Draft. Unless you count the highlights of all the draftees from their college games — in which case, there are a ton.

But there are no live ones. And yet the NFL Draft draws more viewers than most of the championship games of other major sports leagues.

Last year's NFL Draft averaged six million viewers across the three days — but had 11.29 million on Day 1 across the three channels. That Day 1 total is higher than the number of fans who watched the 2023 MLB World Series, and was around the average of all five games of the 2023 NBA Finals.

The NFL Draft's Day 1 viewership has passed ten million every year since 2018.

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The draft saw its viewership explode in 2020, hitting over 15 million, but that was during the start of the pandemic when there was an unprecedented lack of sporting events.

It will be interesting to see whether this year's draft will bring in more viewers considering the strong quarterback field that also includes LSU's Jayden Daniels, UNC's Drake Maye, and Michigan's J.J. McCarthy. There are also big name teams picking at the top outside of the Bears as the New England Patriots hold the third selection, while the New York Giants have the sixth pick in the draft.

Related: A powerful politician wants to bring the Super Bowl, WrestleMania across the pond

The NFL has turned the draft into a spectacle, even in person

Detroit is the host city for this year's NFL Draft, and the city is expecting over 300,000 people at Campus Martius on the Detroit Riverfront over the next three days.

According to consulting firm Anderson Economic Group, the city is "expected to exceed $160 million" in net economic effect, which is inline with the $164.3 million that was generated in Kansas City from last year's draft.

The Draft used to be exclusively held at New York City's Radio City Music Hall, but since 2015, it has expanded to other NFL team's cities and has turned into a tentpole event that cities could bid on similar to the Super Bowl or NBA All-Star Game.

Related: Veteran fund manager picks favorite stocks for 2024

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